Question 1

Refer to the above graph.It represents a monopolistically competitive firm in a constant-cost industry.In long-run equilibrium this firm will:

Accepted Answer

A)   continue to earn economic profits because it has monopolistic power to set its price.
B)   become a perfectly competitive firm because there are no significant barriers to entry.
C)   break even because average total cost (AT
C)  and marginal cost (M
C)  will increase as more firms enter the market.
D)   break even because its demand curve will fall and become more elastic as it loses sales to other firms entering the market.

Question 2

The demand curve faced by a monopolistically competitive firm:

Accepted Answer

A)   is more elastic than the monopolist's demand curve.
B)   is less elastic than the monopolist's demand curve.
C)   will shift outward as new firms enter the industry.
D)   is more elastic than the demand curve faced by the purely competitive firm.

Question 3

Under oligopoly,if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share,it is most likely that other firms in that industry will:

Accepted Answer

A)   pursue a strategy to reduce advertising expenditures to maintain profits.
B)   decide to increase advertising expenditures even if it means a reduction in profits.
C)   make no changes in advertising expenditures because advertising is effective in the short run,but not the long run.
D)   increase the price of the product to improve profits and then increase advertising expenditures.

Question 4

In imperfectly competitive industries,producers' agreements to restrict output tend to be unstable because each firm has an incentive to:

Accepted Answer

A)   produce more than its output quota.
B)   lower both its price and its output.
C)   raise prices above the cooperative price.
D)   establish competitive price and output levels.

Question 5

What is a positive effect of advertising?

Accepted Answer

A)   It reduces economic efficiency in the economy.
B)   It promotes economic concentration in industry.
C)   It is designed to persuade rather than inform consumers.
D)   It provides information that reduces search costs.

Question 6

Which is a likely characteristic of a differentiated oligopolistic market?

Accepted Answer

A)   There are minimal barriers to entry.
B)   The market demand curve is inelastic.
C)   There is minimal advertising expenditure.
D)   Price and output decisions of firms are interdependent.

Question 7

In the kinked-demand model,there will be a vertical break in the firm's:

Accepted Answer

A)   demand curve.
B)   marginal cost curve.
C)   marginal revenue curve.
D)   average total cost curve.

Question 8

Which is a characteristic of monopolistic competition?

Accepted Answer

A)   Standardized product
B)   A relatively small number of firms
C)   Absence of nonprice competition
D)   Relatively easy entry

Question 9

In an oligopoly game,each player tries to:

Accepted Answer

A)   maximize its own profits.
B)   minimize the market shares of its opponents.
C)   minimize the profits of its opponents.
D)   maximize its own market share.

Question 10

In long-run equilibrium,a monopolistically competitive firm achieves:

Accepted Answer

A)   productive and allocative efficiency.
B)   productive efficiency but not allocative efficiency.
C)   allocative efficiency but not productive efficiency.
D)   neither allocative efficiency nor productive efficiency.

Question 11

The steel industry is an example of a homogeneous oligopoly.

Accepted Answer

A) True 
 B)False

Question 12

Which market model is characterized by many firms,differentiated products,and relatively easy entry?

Accepted Answer

A)   Pure competition
B)   Pure monopoly
C)   Monopolistic competition
D)   Oligopoly

Question 13

The long-run equilibrium position of a monopolistically competitive firm is where average costs are:

Accepted Answer

A)   constant.
B)   increasing.
C)   decreasing.
D)   at their minimum point.

Question 14

If output is set at the kink of the kinked-demand model,then there:

Accepted Answer

A)   is a strong incentive for rivals to decrease prices.
B)   is a strong incentive for rivals to increase prices.
C)   is one price at which marginal revenue equals marginal cost.
D)   are several prices at which marginal revenue equals marginal cost.

Question 15

Refer to the above payoff matrix.Assume that firm B adopts a low-price strategy while firm A maintains a high-price strategy.Compared to the results from a high-price strategy for both firms,firm B will now:

Accepted Answer

A)   lose $75 million in profit and firm A will gain $50 million in profit.
B)   gain $50 million in profit and firm A will lose $50 million in profit.
C)   gain $75 million in profit and firm A will lose $50 million in profit.
D)   gain $50 million in profit and firm A will lose $75 million in profit.The high-price strategy results in $500 million profits for both.If B adopts a low-price strategy and A stays with the high-price strategy,B will gain and A will lose.

Question 16

Which product is made by an industry that best illustrates the concept of homogeneous oligopoly?

Accepted Answer

A)   Home computers
B)   Cigarettes
C)   Copper
D)   Cars

Question 17

Both collusive and noncollusive oligopoly models suggest that price changes will be relatively infrequent in these types of industries.

Accepted Answer

A) True 
 B)False

Question 18

If oligopolistic firms facing similar cost and demand conditions successfully collude,price and output results in this industry will be most accurately predicted by which of the following models?

Accepted Answer

A)   Kinked-demand curve model of oligopoly
B)   Price-leadership model of oligopoly
C)   Pure monopoly model
D)   Monopolistic competition model

Question 19

A monopolistically competitive industry is like a purely competitive industry in that:

Accepted Answer

A)   each industry produces a standardized product.
B)   nonprice competition is a feature in both industries.
C)   neither industry has significant barriers to entry.
D)   firms in both industries face a horizontal demand curve.

Question 20

A major prediction of the kinked-demand curve model is:

Accepted Answer

A)   price stability in oligopolies.
B)   price instability in oligopolies.
C)   stability of production costs in oligopolies.
D)   stable purchasing behavior by consumers over time.

Exam 9: Monopolistic Competition and Oligopoly

The demand curve faced by a monopolistically competitive firm:

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If output is set at the kink of the kinked-demand model,then there:

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In the kinked-demand model,there will be a vertical break in the firm's:

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In long-run equilibrium,a monopolistically competitive firm achieves:

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If oligopolistic firms facing similar cost and demand conditions successfully collude,price and output results in this industry will be most accurately predicted by which of the following models?

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Which product is made by an industry that best illustrates the concept of homogeneous oligopoly?

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What is a positive effect of advertising?

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Which is a likely characteristic of a differentiated oligopolistic market?

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Which is a characteristic of monopolistic competition?

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A monopolistically competitive industry is like a purely competitive industry in that:

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In imperfectly competitive industries,producers' agreements to restrict output tend to be unstable because each firm has an incentive to:

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A major prediction of the kinked-demand curve model is:

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In an oligopoly game,each player tries to:

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Which market model is characterized by many firms,differentiated products,and relatively easy entry?

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The long-run equilibrium position of a monopolistically competitive firm is where average costs are:

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Under oligopoly,if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share,it is most likely that other firms in that industry will:

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Refer to the above payoff matrix.Assume that firm B adopts a low-price strategy while firm A maintains a high-price strategy.Compared to the results from a high-price strategy for both firms,firm B will now:

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The steel industry is an example of a homogeneous oligopoly.

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Both collusive and noncollusive oligopoly models suggest that price changes will be relatively infrequent in these types of industries.

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Refer to the above graph.It represents a monopolistically competitive firm in a constant-cost industry.In long-run equilibrium this firm will:

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